18 Jul 2017

Selling land for housing: how custom build can maximise land value

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Selling land for housing: how custom build can maximise land value

Selling developable land for housing should be a lucrative process. The UK is facing a dramatic housing shortfall, and a major contributing factor to this is a shortage of building land. Can custom build be a good to route to market, bringing added land value?

Can it deliver advantages when it comes to obtaining planning? We look at the benefits and issues to consider.

What can custom build offer the landowner?

When discussing developable land with planners there are a few points to raise in preliminary planning discussions.

In its favour, custom build is a popular route to sales as its bespoke nature appeals to consumers. Planners often like it because it chimes well with the current desire to have homes sold and occupied quickly.

It also helps counter the lack of diversity in our housing market, as selling your land for tailor-made custom build homes meets buyer criteria such as design preferences, layout options and questions of scale. These are rarely addressed by the wider speculative housing market.

Custom build also engenders a strong sense of community as people have invested considerably in their home, often both financially and emotionally.

Receptive councils like custom build in that it helps diversify the housing supply market, engenders a sense of community and also helps them meet their responsibilities to supply serviced plots.

Custom homes are supported by law

The custom build sector benefits from the Right To Build legislation. This ensures that every council in England must host a register of local people interested in some form of custom or self-build.

Each authority is legally required to provide serviced plots to meet this demand within three years of people signing up to the register. Targeting this group can be a good means of addressing some planning concerns.

Developable land: what to consider

While custom build sites come in a range of sizes, larger developments have so far tended to be supported by the Homes and Communities Agency, such Heartlands or Park Prewett/Trumpet Junction, or be on ex-public sector land, like Graven Hill. The new Garden Towns and Villages offer scope for larger custom build developments.

Small-to-medium sites

The government is currently supporting SME builders, and consequently land that can support between 5-30 units makes custom build worth considering.

Bringing on land for this volume of homes is manageable for your typical SME enabler or developer that you, as a landowner, can partner with to maximise land value.

Like government, planners are keen to support local SMEs, as they represent local employment. So you’re boosting the local economy and hitting government targets – use these to your advantage in planning meetings.

Economic and geographical factors

Bear in mind that local conditions will influence the value of your land. The location, existing infrastructure and local land values will all have impact.

Use the help that’s on offer to ensure land is developable

NaCSBA’s Right To Build Toolkit is a mine of information for any landowner considering custom build, as are the many planning consultancies happy to advise in return for your cash.

Make your land more appealing by using the law

Use planning policies in your favour, such as Starter Homes and exception sites, which may help you negotiate the minefield of bringing forward developable land for housing.

The recent White Paper proposed changes to the national planning policy for small sites of 1-10 plots that are outside of existing settlement boundaries, or within settlements that don’t have a boundary.

Although legislation dependent, if passed, this could be a route to giving your land the potential to maximise earnings.

Exception sites can also be a good route to securing planning permission for custom build. Especially if they’re used for affordable housing, as councils can use them to create a range of opportunities that wouldn’t otherwise be available, again the Right To Build Toolkit is a good source for this.

The essentials for proceeding

You’ll need a development plan that takes into account the value of the development, contract costs and costs associated with finance and funding, together with managing the process.

New developments tend to get built on the fringes of existing development, so consider where you land is in relation to settlements.

This is important to mitigate the issues of ground services, infrastructure, such as roads, contamination and multi-ownership or title/access problems. All of these stack the odds for planners, as well as having a direct correlation with costs.

When is land a building plot?

To establish the viability of land for building, you need to consider a range of factors. Not least are the National Planning Policy Framework (NPPF) and Local Plans – together with a five-year supply of deliverable housing sites, as well as area-wide allocations, such as Garden Towns or Villages.

As a landowner it’s also important that you understand where settlement boundaries are. Your local planning office should be the first port of call for compiling this information.

How much is my land worth?

The Gross Development Value of the land will have the costs of development, including abnormal costs, deducted to create an Open Market Valuation. This forms the basis for the amount paid to you for your land.

The Residual Method assumes that the residual value is released after development is completed.

Residual land value = Value of completed development – all development costs (including fees and finance) – any developer’s profit.

OR

Land = GDV – (construction+fees+profit)

Legal requirements that custom build can help with

Section 106 payments, Community Infrastructure Levies and affordable quotas can all be levied on land – and they can all have a significant impact on a landowner’s return on investment. Currently, self-build and custom build are exempt from CIL and S106 payments, which can help bolster value when compared to standard disposal of land for speculative building.

Retaining ownership for added land value

Involving a third-party developer will eat away at the price offer for your land, as they will be looking to maximise their own profit and minimise their risks.

The benefit of using a third party developer or land agent is they have the experience and knowledge that the novice landowner will lack. They will assist with surveys, land assessment, infrastructure plans as well as house plans.

Alternatively, you may choose to maximise your land value by partnering with an enabler that will allow you to retain your land value, as they take their profit from the builds. Potton is very active in the custom build arena using this model.

Increased profits can be passed on to the self-builder or custom builder to encourage sales and build in affordability. Again, the quicker the build out of a development the less the perceived risk from financiers, insurers and planners. And affordability will always appeal to local authorities, and may colour their judgement.

Local appeal of custom build

Finally, don’t forget that if you have windfall or legacy site, chances are that you live nearby on a farm or have some form of emotional connection to it.

Custom build offers a good route as it nurtures communities, better quality houses and more of a commitment to an area – all of which are positives when considering who your new neighbours might be.

Equally, using local registers for custom build can mean that local people get first dibs on any plots – which can help offset local opposition to development.

 

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